The Merger Control Review: Ireland Chapter - Antitrust, EU Competition

I INTRODUCTION

The Competition Act 2002 as amended ('the 2002 Act') sets out the statutory framework for merger control in Ireland. The Competition Authority ('the Authority') is the state body responsible, under Part 3 of the the 2002 Act, for the enforcement of merger control law in Ireland.

The Authority's merger control function under the 2002 Act is to determine the competitive impact that a merger may have on competition in Ireland. The Authority will assess a merger to determine whether it is likely to 'substantially lessen competition' in markets for goods or services in the state.

The Authority has sole responsibility for non-media mergers and shared responsibility with the Minister for Jobs, Enterprise and Innovation in relation to media mergers. The Minister for Finance may intervene in a merger or acquisition involving a credit institution where the transaction is necessary to maintain the stability of the financial system in the state.

Mergers may fall within the scope of either the European merger control regime, or the Irish merger control regime. If the annual combined turnover of the undertakings concerned in a merger exceeds certain thresholds, then the transaction falls within the scope of the European Commission's jurisdiction under the EC Merger Regulation ('the ECMR').¹ If the merger falls below the turnover thresholds in the ECMR then national competition authorities may apply their respective legislation.

The obligation to notify under Part 3 of the 2002 Act applies to a proposed 'merger or acquisition' where the undertakings involved satisfy thresholds set out in the 2002 Act. Under Section 16(1) of the 2002 Act, a 'merger or acquisition' occurs if:

two or more undertakings, which were previously independent of each other merge; or
one or more individuals or undertakings that control one or more undertakings acquire direct or indirect control of the whole or part of one or more other undertakings (including the creation of a joint venture performing indefinitely all the functions of an autonomous economic entity); or
the result of an acquisition by one undertaking of the assets (or a substantial part of the assets), including goodwill, of another undertaking, is to put it in a position to replace or substantially replace that other undertaking in the business or, as appropriate, the part concerned of the business it carried on before the acquisition.

The term 'control' is defined in Section 16(2) of the 2002 Act as the ability to exercise 'decisive influence' over the activities of an undertaking, whether such influence is conferred by the acquisition of securities or contract, or a combination thereof, or by any other means. In practical terms, this will be demonstrated by ownership of assets, or by rights or contracts that enable decisive influence to be exercised over the voting or decisions of the organs of an undertaking.

In respect of non-media mergers, the financial thresholds that trigger the mandatory obligation to notify are found in Section 18(1)(a) of the 2002 Act. Section 18(1)(a) provides that a merger or acquisition is notifiable where, in the most recent financial year:

the worldwide turnover of at least two of the undertakings involved in the transaction is no less than €40 million;
two or more of the undertakings involved in the transaction carry out business in any part of the island of Ireland;² and
any one of the undertakings involved has turnover in the Republic of Ireland of no less than €40 million.

Sections 18(1)(b) and 18(5) of the 2002 Act provide that the Minister for Jobs, Enterprise and Innovation may specify certain classes of mergers and acquisitions that must be notified to the Authority regardless of the thresholds set out in Section 18(1)(a) of the 2002 Act. The Minister has done so in relation to media mergers, which are defined in Section 23(10) of the 2002 Act as 'a merger or acquisition in which one or more of the undertakings involved carries on a media business in the state'. In consequence, media mergers are treated separately under the 2002 Act.

The concept of 'undertakings involved' in the transaction, from a competition law perspective, will be those undertakings that will influence the competitive behaviour of the entity once the transaction has been completed. The term therefore, generally covers the buyer and the target, and specifically does not include the vendor. This is because after the transaction has been completed, the vendor will no longer control the competitive behaviour of the business sold.

The term 'carries on business' is set out in an Authority Notice.³ This states that the Authority understands that term as including undertakings that either:

have a physical presence in the island of Ireland and make sales or supply services to customers in the island of Ireland; or
without having a physical presence in the island of Ireland, have made sales into the island of Ireland of at least €2 million in the most recent financial year.

While mergers or acquisitions that do not meet the jurisdictional thresholds set out above do not have to be notified, provision is made for voluntary notification to the Authority under Section 18(3) of the 2002 Act. Clearance by the Authority protects the parties involved from a subsequent challenge to the merger by the Authority or third parties under Sections 4 and 5 of the Act. Mergers that are voluntarily notified are subject to the same procedural rules as mergers to which the mandatory notification obligation applies.

The Authority's guidelines for merger analysis⁴ set out a general rule for voluntary notification as follows:

consider notifying the Authority if the post-merger market share is above 40 per cent on any reasonable definition of the relevant market;
do not notify if post-merger the market is not very concentrated; and
for in-between cases, cases where the assessment relies critically on market definition or cases where a foreign entrant is involved, informal pre-notification discussions with the Authority are encouraged.

II YEAR IN REVIEW

Following a strong recovery in 2010, merger and acquisition activity in 2011 commenced in a similar vein. For the second year in a row, the Irish mergers and acquisitions market remained ahead of the lows experienced in 2009. The total number of deals recorded in 2011 was 187 with a total reported deal value of €7.38 billion. Overall in terms of volumes, 2011 saw a 5.1 per cent reduction in the number of deals from the 197 deals recorded in 2010.

Of the 187 deals in 2011, some 40 of these were notified to the Authority, a small decrease from the 46 filings made in 2010. However, levels still remain well above the 2009 lows. Of the 40 deals notified to the Authority, six involved extended review periods beyond the statutory one-month Phase I period. Interestingly, for the first time since the current statutory framework was introduced, no Phase II investigations were opened by the Authority in 2011.

For the first time, legislation introduced to remove banking mergers outside the remit of the Authority was invoked. In June 2011, the Minister for Finance certified that the acquisition by Allied Irish Bank of EBS Limited was necessary to prevent a serious threat to the stability of the Irish financial system. The deal was approved by the Minister for Finance on 27 June 2011 with no reference to the Authority.

Notable deals during the year included Alkermes's €669 million acquisition of Elan Drug Technologies, Greencore's €128.5 million acquisition of UK group Uniq and Kerry Groups' €171.8 million acquisition of Cargill Flavour Systems. The trend of asset disposals by Bank of Ireland and Allied Irish Bank continued throughout 2011. This included the Irish government's €2.3 billion investment in Irish Life and Permanent, the €1.1 billion investment by a group of institutional investors and fund managers, led by Fairfax Financial Holdings for a stake in Bank of Ireland and the €200 million disposal of Quinn Direct Insurance to Liberty Mutual and the Irish Bank Resolution Corporation Limited.

III THE MERGER CONTROL REGIME

Mergers coming within the scope of the 2002 Act must be notified in writing to the Authority within one month of the conclusion of a binding agreement or the making of a public bid. Failure to notify is a criminal offence pursuant to Section 18(9) of the 2002 Act, which may result in liability to fines for any 'person in control' of the undertaking who has failed to notify or who has failed to supply information required by the Authority in the specified time frame. A notifiable merger will be void if put into effect without notification or prior to a final decision of the Authority or prior to the lapse of the time period within which the Authority has to make its determination.

i Waiting periods and time frames

Ireland's merger notification regime is mandatory. Mergers coming within the remit of the 2002 Act must be notified within one month of the conclusion of a binding agreement.

The 2002 Act provides for a two-phase examination process for the assessment of mergers.

In Phase I, the Authority has an initial period of one month in which to decide whether to allow the merger to be put into effect on the grounds that it would not substantially lessen competition, or to carry out a more detailed investigation. The one-month period runs from the date of notification. If the Authority makes a formal request for information the time frame is suspended and the clock restarts on receipt by the Authority of the information requested.

During Phase I, the Authority can at any time discuss measures to lessen the effect of the merger on competition with the undertakings involved or third parties. In these discussions, any of the undertakings involved can submit alterations to the manner in which the merger will take effect, or propose alternative solutions. These proposals may form part of the Authority's first-stage decision to approve the merger, in which case they are binding on the parties.

The relevant one-month review period may be extended to 45 days where the parties and the Authority negotiate undertakings or commitments to secure measures which would ameliorate the effects of the merger.

At the end of Phase I, the Authority must inform the notifying undertakings and any other undertakings making submissions, that either:

the merger or acquisition can be put into effect because it will not substantially lessen competition in Ireland; or
that it has decided to carry out a full Phase II investigation to assess the effects of the proposed merger on competition.

If the Authority fails to do either within the time allowed, the merger or acquisition will be deemed cleared and can be put into effect.

If at the end of the Phase I investigation, the Authority is unable to form the view that the proposed merger will not result in a substantial lessening of competition, then a Phase II investigation is initiated.

A Phase II investigation involves a more detailed examination by the Authority.

Phase II is an additional three-month period, in which the Authority is able to conduct a more detailed examination of the transaction. This in effect means that the Authority has a total period of four months from the date of receipt of a notification (or receipt of further information requested by the Authority) to issue a determination on the merger.

The following procedure applies in a Phase II investigation:⁵

The Authority informs the notifying undertakings and those who have made submissions that it intends to carry out a full Phase II investigation.
The Authority issues a press release on the date of its determination to initiate the investigation and invites submissions from third parties within a specified time frame (generally 21 days, although this may be changed by notice on its website).
If, after eight weeks from the opening of Phase II investigations, the Authority is satisfied, on the basis of all submissions and information received, that the result of the merger will not substantially lessen competition, it may at that stage issue a clearance decision or a clearance subject to conditions.
If the Authority is not satisfied that the merger will not substantially lessen competition, it sends an assessment to the notifying undertakings, within this eight-week period. This assessment will outline the nature of the Authority's concerns regarding the effect of the proposed transaction on competition.
The undertakings involved may reply to the Authority's assessment in writing within three weeks of its receipt. After the issuing of the assessment, the undertakings involved can access the file in accordance with the Authority's criteria under its Procedures for Access to the File in Merger Cases. In essence this means that the notifying parties have a right to review the Authority's file on the investigation.
Within a week of providing the assessment, any party to the merger that wishes to make oral submissions must notify the Authority in writing that it intends to do so and the Authority then fixes a date to hear the submissions. Third parties who have furnished submissions may also be invited to make oral submissions at the sole discretion of the authority.
The Authority may enter into discussions with undertakings involved with regard to the manner in which the merger may be put into effect and the undertakings involved may make proposals of measures that would ameliorate negative effects of the merger on competition. This must occur no later than three weeks after the assessment has been issued.

On completion of the Phase II investigation, the Authority is obliged to make one of the following determinations:

that the merger may be put into effect;
that the merger may be put into effect subject to certain conditions; or
that the merger cannot be put into effect.

The Authority must inform the notifying undertakings within four months of the date of notification or, if a formal request for information is made, from the date of receipt of a complete response. If the Authority fails to communicate a final determination to the parties within that period, the merger or acquisition will be deemed cleared and can be put into effect.

Additional procedures apply in respect of media mergers. If the Authority clears a media merger at the end of Phase I, the Minister for Jobs, Enterprise and Innovation may, within 10 days pursuant to Section 22 of the 2002 Act, direct the Authority to carry out a Phase II investigation. If, on completion of a Phase II investigation, the Authority clears a media merger, the Minister for Jobs, Enterprise and Innovation may, within 30 days (having regard to Section 23 of the 2002 Act), order that the media merger may or may not be put into effect. The Minister's order must then be placed before each House of the Irish parliament, and if a resolution annulling the order is passed by either House of the Irish parliament within 21 days, the order is annulled. If the order is annulled, the Authority's Phase II decision has effect.

ii Parties' ability to accelerate the review procedure

There is no particular procedure available to accelerate the review process, although the Authority is amenable to requests for early clearance from the parties in certain circumstances. As noted previously, the Authority has shown a willingness to accelerate the review process in 'rescue merger' cases and in such cases, it may use its discretion to reduce the number of days for third-party submissions.

iii Third-party access to the file and rights to challenge mergers

The notifying parties are given access to the Authority's file of documents in accordance with the criteria set out in its publication regarding the Procedures for Access to the File in Merger Cases. This provides that access to the file in the context of merger review will remain limited to those undertakings to whom the assessment is addressed.

Third parties do, however, have a right to comment on proposed mergers. Section 20(1)(a) of the 2002 Act provides that within seven days of receiving a notification, the Authority must publish a notice of receipt inviting third-party comment. The Revised Merger Procedures state that third parties who wish to make submissions regarding a merger must do so within 10 days of publication of the notice. The Authority may, however, change this time limit by notice on its website in individual cases, if the circumstances so require.

Section 20(1)(b) provides that the Authority may enter into discussions, at any stage of its investigation, with the undertakings involved or third parties, with a view to identifying measures that would ameliorate any adverse effects of a merger or acquisition on competition. Third parties can make submissions and may meet with case officers at any time in Phase I or Phase II if they can demonstrate a legitimate interest in the merger. Once the Authority has made its final determination, third parties have no right to appeal such to the courts under the 2002 Act.

iv Resolution of the Authority's competition concerns, appeals and judicial review

The Authority can decide that a merger may be put into effect subject to specified conditions. The Authority may enter into discussions with the undertakings involved during both Phase I and Phase II investigations with a view to ameliorating any anticompetitive effects that may arise upon implementation of the merger. An undertaking involved may also submit proposals to the Authority in relation to the merger with a view to those proposals becoming binding on it in the event of the Authority adopting them as part of its determination. The Authority may also impose conditions on its determination after a Phase II investigation.

Section 26 of the 2002 Act provides that any person who contravenes a provision of a commitment or determination by the Authority or order of the Minister will be guilty of a criminal offence attracting both fines and imprisonment.

v Appeals and judicial review

The 2002 Act provides that any of the undertakings involved in a notified merger may appeal to the High Court against the decision of the Authority on a point of fact or law. This appeal must be made within one month of the date the undertaking is informed of the decision by the Authority. The High Court can annul, confirm or confirm with modifications the determination made by the Authority. A further appeal to the Supreme Court may only be made on a question of law. Third parties are not entitled to an appeal to the courts although they may be able to seek judicial review of the Authority's decision.

In 2009, an appeal against a decision of the Authority to block an acquisition was upheld by the High Court. In the case in question, the Kerry Group had initiated an appeal against the decision of the Authority to block the proposed acquisition by Kerry Group plc of Breeo Foods Ltd and Breeo Brands Ltd. The Authority had concluded that the transaction would have resulted in a substantial lessening of competition, however, the High Court overturned this decision on the basis that the Authority's prohibition was undermined by material error.

The Authority initiated an appeal of the High Court decision to the Supreme Court in 2010 and made an application for priority hearing in 2010. This application was rejected and at the time of writing the appeal is still pending.

vi Concurrent review of mergers

While the Authority is the primary body responsible for monitoring and regulating merger control in this jurisdiction, there are two 'special' types of merger that are subject to special rules.

The first are media mergers. Under the Act, the Minister for Jobs, Enterprise and Innovation may specify a class of merger that must be notified to the Authority, irrespective of the turnover of the undertakings involved. Media mergers have been specified by the Minister as a class of merger that are compulsorily notifiable.

The definition of media merger was revised in 2007 by way of statutory instrument.⁶ These mergers are now defined as:

mergers in which at least two of the undertakings involved carry on a media business in the Republic of Ireland; and
mergers in which one or more of the undertakings involved carries on a media business in the Republic of Ireland and one or more of the undertakings involved carries on a media business elsewhere.

A 'media business' means a business involved in the publication of newspapers or periodicals consisting of substantially news and comment on current affairs, a business providing a broadcasting service, or a business providing a broadcasting services platform.

Media mergers are reviewable by the Minister and when the Authority receives notification of a media merger it has an obligation within five days of receipt to notify the Minister.

As mentioned previously, where the Authority determines at Phase I that a media merger may be cleared, the Minister can, despite the Authority's determination, direct that it carry out a Phase II investigation. If the Authority clears the transaction following a Phase II investigation, the Minister has 30 days in which to clear, clear with conditions or prohibit the merger. The Minister's decision will be based not only on competition concerns but also on the basis of public interest criteria which are set out in Section 23(10) of the 2002 Act.

The second type of 'special' merger are mergers that are subject to Section 7 of the Credit Institutions (Financial Support) Act 2008 ('the 2008 Act'). This provides for the provision of a special merger regime in circumstances where the merger involves a credit institution and the Minister for Finance is of the opinion that the merger is necessary to maintain the stability of the financial system in the state. In those circumstances, it is the Minister for Finance and not the Authority who has power to determine whether or not the merger should be approved under the merger control provisions of the Act. Such mergers are notifiable to the Minister for Finance rather than the Authority and may not be implemented without ministerial approval. This regime will be discussed further below.

vii Suspensory effect of review on the transaction

A notifiable merger cannot come into effect prior to the express or deemed clearance of the Authority. As such, the relevant transaction cannot come into effect until the Authority has made its determination, which may take up to four months depending on the level of review to which the merger is subject.

The usual practice is for the parties to a notifiable merger to agree that the merger will not be completed until approval has been obtained from the Authority. If the merger is put into effect prior to clearance, then the transaction will be void. It would seem, however, that the transaction may not be void indefinitely.

In Radio 2000/Newstalk 106, Radio 2000 acquired operational control of the target radio station before the transaction had been approved by the Authority. The Authority concluded that the relevant section of the 2002 Act (Section 19(2)) is designed to protect the Authority's right of review and is not intended to render a merger void indefinitely and accordingly that a transaction that has been implemented prior to clearance by the Authority remains void only until such time as the Authority issues a clearance decision.⁷

IV OTHER STRATEGIC CONSIDERATIONS

i Coordinating with other jurisdictions

Section 46 of the 2002 Act provides that the Authority may enter into arrangements with competition authorities in other countries for the exchange of information and the mutual provision of assistance. The Authority also cooperates and shares information with the European Commission and is a member of the European Competition Network and the International Competition Network.

The Authority is currently the co-vice chair of the EU Merger Working Group. This working group was established in 2010 by the national competition authorities of the EU in order to exchange experience and foster greater cooperation between agencies in the area of EU merger control.

ii The Authority's response to the economic downturn

The Authority has, during the economic downturn, used its discretion to accelerate the review procedure and reduce the number of days for third-party submissions in order to expedite the assessment process in dealing with rescue mergers. In Club Travel/Budget Travel,⁸ the Authority cleared the notified transaction within 17 working days. The review process was expedited as Budget Travel was in liquidation.

Following the adoption of the 2008 Act, the banking sector is now subject to special rules in respect of merger control. This emergency legislation was adopted by the Irish parliament on 2 October 2008 in the midst of Ireland's financial crisis. It essentially allowed financial support to be provided to Irish credit institutions but also changed the competition rules normally applicable to mergers to enable mergers substantially lessening competition nonetheless to be cleared on financial stability grounds.

Under this legislation a proposed merger involving an Irish-licensed credit institution or its subsidiary may be certified by the Minister for Finance where he believes that the transaction is necessary to maintain stability in the financial sector. Certified transactions that would otherwise be notifiable to the Authority pursuant to the merger control provisions of the 2002 Act are now notifiable to the Minister for Finance and the normal procedural rules of the 2002 Act are disapplied.

On receipt of a notification of a certified transaction, the Minister for Finance must consult urgently with the Minister for Jobs, Enterprise and Innovation, the Central Bank and the Authority. The Minister is not obliged, however, to follow any views or recommendations expressed by the Authority following such consultation. The Minister for Finance must make a decision as soon as is reasonably possible to either approve the certified merger or not. The Minister may approve the transaction if he considers that it will not substantially lessen competition. Even if it will so result, the Minister for Finance may clear the merger where this is necessary in order to (1) maintain the stability of the financial system in the state, (2) avoid a serious threat to the stability of credit institutions, or (3) remedy a serious disturbance in the economy of the state.

The new provisions should be read in conjunction with certain existing provisions in Part 3 of the 2002 Act, which will continue to apply. The definition of qualifying mergers and acquisitions in the 2002 Act continues to apply, as do the provisions on the requirements for and timing of notifications. There is no statutory right of appeal against a determination by the Minister, but the possibility of seeking judicial review remains open.

iii Changes to the Competition Authority

In 2008, the Irish government announced its plans to merge the Authority and the National Consumer Authority ('the NCA'), which is the body charged with protecting consumer interests and enforcing consumer law in Ireland. Such a 'merger' would bring Ireland in line with the practices in the UK and the US where the Office of Fair Trading ('the OFT') and the Federal Trade Commission ('the FTC') each include a consumer policy remit as well as being responsible for competition policy.

Legislation in this area is due to be brought before the Irish government in 2012. The proposed Consumer and Competition Bill will be based on a draft scheme which was presented to the government by the Minister for Jobs, Enterprise and Innovation. The new Consumer and Competition Authority will be charged with performing the functions of both the Competition Authority and the National Consumer Agency and as such it is likely that the 'new' Authority will be required to accord consumer welfare greater prominence in the assessment of mergers.

On 3 October 2011, the Minister for Jobs, Enterprise and Innovation announced the appointment of Ms Isolde Goggin as chairperson of the Authority. Ms Goggin will also serve as chairperson-designate of the proposed Consumer and Competition Authority.

V OUTLOOK AND CONCLUSIONS

Merger notifications in Ireland have continued to rise following a significant lull in 2009 and this trend appears likely to continue in the long term. The financial services sectors saw the most M&A activity during 2011 and this is expected to continue in 2012.

The traditionally strong areas of medical and biotechnology accounted for a total of 14 per cent of the deals in 2011 demonstrating that Ireland's reputation for innovation in these areas continue to be attractive to investors. These sectors are expected to remain strong in 2012 and beyond as Ireland moves towards a sustainable recovery.

Following on from an announcement by the Minister for Communications in 2011, a new regulatory regime for media mergers is expected to be put in place which would see exclusive responsibility rest with the Department of Communications for the review of both broadcasting and newsprint mergers.

It is recognised that the Irish government has committed to an active competition policy in its programme for government. While enforcement and government backing of competition policy has fluctuated throughout the years, the emphasis now being put on enhancing competitiveness is broadly welcome in the wider interests of the Irish economy.

Originally published by Law Business Research Ltd.

Footnotes

1 Council Regulation (EC) No. 139/2004.

2 Ireland and Northern Ireland.

3 Notification N/02/003.

4 Notification N/02/004.

5 The Competition Authority Procedural Guidelines 'Revised Procedures for the Review of M&A'.

6 SI 122/2007.

7 Determination M/04/003 of the Competition Authority.

8 Notification M/10/003.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

Ireland: The Merger Control Review: Ireland Chapter